With the rising prices of real estate across all major cities in India, it has become virtually impossible to purchase a house with a down payment. All your life you may have saved to make sure that your dream of owning a home comes true, but then somethings are beyond your control. However this does not mean that there is nothing you can do to change this. The best option that you have in such a scenario is applying for a Home Loan.
There are different Home Loan Types in India that are offered by financial institutions. Home Loans are a secured form of lending where your house is mortgaged with the lender until you repay the loan amount in full, along with interest. Different financial institutions have their own Home Loan eligibility criteria and based on how well your profile fulfils this criterion, your application is assessed.
Your application for a Home Loan is assessed based on various parameters set by the financial institution. It is important for the lender to be satisfied with your application to ensure that you can get the Home Loan. Some of the significant factors that determine your eligibility are:
These factors play an essential role in establishing your eligibility for a Home Loan, but when it comes to calculating the amount that you are eligible for, lenders use a specific factor called LTV Ratio (Loan-to-Value Ratio).
LTV Ratio is a risk assessment tool used by lenders to decide the amount of loan that could be extended against your application for a Home Loan and to make sure that they do not lend you more than the value of the property. In simple terms, it is the ratio of the loan amount that could be extended to the appraised value of the property.
The value of the property that you wish to purchase would be assessed by an approved valuer from the lender’s side and based on that value LTV is calculated. Most lenders accept an LTV ratio of up to 80% only, but there are some who consider LTV ratio of up to 90% also. Lenders prefer lower LTV ratio, as it minimises their risk as compared to a high LTV.
LTV ratio plays a significant role in your Home Loan application, and you need to understand its various implications before applying for a Home Loan:
The calculation of LTV ratio is in the hands of the lender only and has nothing to do with you. So, you have to take a decision based on the following parameters:
Buying your own home is one of the most significant decisions of your life, so you need to assess all the parameters, analyse their pros and cons, and only then make the final call.
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